BANKRUPTCY is what happens in bad Hindi movies.

The gigantic lock sealed tightly with tape, the notice full of legal mumbo jumbo stuck to the door are images we have seen on screen. But can it happen to us?

While your instinctive response might be a resounding 'No!', you would be surprised at the number of well-to-do families heading straight for bankruptcy. We know of a businessman whose annual income is Rs 2 crore (Rs 20 million), and who may be heading for bankruptcy in five years.

How? We spoke to Certified Financial Planner Amar Pandit, who says, "There are various situations that can take a person to bankruptcy. But the biggest tell tale sign is when he is not in a position to service his debts adequately."

And bankruptcy is not pretty. Advocate Nirupama Kar says, “If a person goes bankrupt, all his personal property, bank balance, investments get attached,” which essentially means that you have nothing to fall back on.

Sounds scary, right? Here are five questions for you. Pat yourself on the back every time your answer is 'No'.

1. Are you borrowing too much?

Look around you. Nine out of ten people would be servicing a loan. Some even service multiple loans! That is because today, we don't think twice about buying what we cannot afford.

You make a beginning with your your first default on your credit card bill, move to bigger things such as your car loan, the personal loan you took for a vacation. And, soon, your spending spree is out of control.

Without any liquid assets, your entire pay cheque goes into consumption.

Pandit suggests a thumb rule, “For home or car loans, ensure that the monthly payment outgo towards your borrowings is not over 35 per cent."

For those taking high cost business loans to fund aggressive growth plans, the outgo can be stretched to 45 per cent, if you consider the fact that the asset will bring you income. But any more than that means danger.

2. Have you neglected medical insurance?

If you are in the pink of health, it is difficult to imagine an illness could make you bankrupt. But it can.

In the United States, medical bills are a factor in one out of five bankruptcies. This is because a critical medical situation not only means mean a major loss of income, but the lack of adequate medical cover to pay hospitalisation costs would also mean eroding your savings.

In our book, this is frightening. We have topped our medical insurance ever since we heard this. Why don't you?

1 | 2 |  

e-mail: Team@Wealth

Suggest a story idea! Write to us!